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30 June 2017

Hong Kong economy strengthens in 2017

1. Broad-based improvement in 1H 2017

Hong Kong economy gradually improved since 2H 2016. Even though the tourism and retail industries are still suffering from structural adjustment, major economies around the world, including the US, China and Eurozone, all maintained stable growth and the global political uncertainties did not derail the recovery. Moreover, the market has very high expectation on tax cut and infrastructure plans proposed by the US President, which boosted the financial market performance and economic confidence. With the improving global economic outlook, Hong Kong economy grew robustly by 4.3% over the previous year in Q1 2017, accelerating from the 3.2% growth in Q4 2016, the fastest pace since Q2 2011. On a seasonally adjusted quarter-to-quarter basis, real GDP increased by 0.7% in Q1 2017 after 1.2% growth in the preceding quarter.

i) The external performance improved further. In Q1 2017, total exports of goods accelerated to 9.2% in real terms over the previous year, compared to 1.8% and 5.1% growth in 2016 and Q4 2016 respectively. It can be attributed to a number of factors including, first, the comparison base was low in Q1 2016, as the economy suffered from intense downward pressure globally, depreciation pressure of RMB and volatilities related to US interest rate hikes, etc. Second, the US and Eurozone economies have been improving since 2H 2016, supporting the recovery of merchandise exports. Third, merchandise exports to a number of Asian economies (including Mainland China) also recorded robust growth. With the strengthening of trading and production activities in the region, their imports demand of commodities, semi-manufacturing products and capital goods also increased notably. Meanwhile, the monthly merchandise trade statistics showed that the value of total exports increased 9.4% year-on-year in the first four months of 2017, indicating continuous improvement of the external performance.

Exports of services recorded moderate expansion, with narrower negative drag from the tourism industry. In the first four months of 2017, the number of visitor arrivals increased 3.2% over the previous year. However, per capita tourism spending was still decreasing and the tourism industry has not yet fully recovered from the structural adjustment. Exports of tourism services declined 12 consecutive quarters, with 1.2% contraction year-on-year in Q1 2017, better than 4.0% decline in Q4 2016, and greatly alleviating its drag on the overall exports of services. Moreover, financial markets improved globally, together with stronger economic outlook, exports of financial services recorded 1.9% year-on-year expansion in Q1 2017, reversing the downtrend since Q2 2016. Furthermore, growth on exports of transportation services remained relatively fast amid stronger regional trade and cargo flows. The overall exports of services increased 2.6% year-on-year in real terms in Q1 2017, stronger than the 3.2% decline in 2016 and 1.2% expansion in Q4 2016.

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